Q1 2024 Claros Mortgage Trust Inc Earnings Call
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Operator: Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claros Mortgage Trust, and Mike McGillis, President and Chief Financial Officer and Director of Claros Mortgage Trust. We also have Kevin Cullinan, Executive Vice President, who leads EMREC's Origination, and Priyanka Garg, Executive Vice President, who leads EMREC's Portfolio and Asset Management. Prior to this call, we distributed CMGG's earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions, please contact me.
Thank you I'm joined by Richard Mack, Chief Executive Officer, and Chairman of Claris Mortgage Trust.
Operator: And Mike Mcgillis, President and Chief Financial Officer, and director of Claris Mortgage Trust.
Speaker Change: We also have Kevin calling in executive Vice President, who leads emrich origination and Priyanka Garg Executive Vice President Felipe.
Operator: Portfolio and asset management.
Operator: Prior to this call we distributed <unk> earnings release and supplement we encourage you to reference these documents in conjunction with the information presented on today's call if.
Operator: If you have any questions. Please contact me.
Operator: I'd like to remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Azure's results may differ materially from those indicated by these four forward-looking statements as a result of various important factors, including those discussed in our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them.
Operator: I'd like to remind everyone that today's call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Operator: Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors.
Operator: Adding those discussed in our other filings with the SEC.
Operator: Any forward looking statements made on this call represent our views only as of today and we undertake no obligation to update them.
Operator: We will also be referring to certain non-GAAP financial measures on today's call, such as distributable earnings, which we believe may be important to investors to assess our operating performance. For reconciliations of non-GAAP measures to their nearest GAAP equivalent, please refer to the Earnings Supplement. I would now like to turn the call over to Richard.
Operator: We will also be referring to certain non-GAAP financial measures on today's call such as distributable earnings, which we believe may be important to investors to assess our operating performance.
Richard: For reconciliations of non-GAAP measures to their nearest GAAP equivalent please refer to the earnings supplement.
Operator: I would now like to turn the call over to Richard.
Richard Jay Mack: Thank you all for joining us this morning for CMTG's first quarter earnings call. The meaningful decline in inflation at the beginning of the year provided rate-sensitive investors with much optimism. Unfortunately, the last several months have revealed a different narrative. Recent inflation prints have been volatile and have generally come in higher than expectations, making what seemed to be all but certain Fed rate cuts now very uncertain.
Richard: Thank you all for joining us this morning for <unk> first quarter earnings call.
Richard: The meaningful decline in inflation at the beginning of the year provided rate sensitive investors much optimism.
Richard Jay Mack: Unfortunately, the last several months have revealed a different narrative.
Richard Jay Mack: Recent inflation French have been volatile and generally come in higher than expectations.
Richard Jay Mack: Making what seems to be all but certain fed rate cuts.
Richard Jay Mack: Now very uncertain.
Richard Jay Mack: As it relates to commercial real estate, we believe the general outlook for the industry will remain challenging for the remainder of the year and into 2025. We expect continued headwinds in the higher rate environment and because of a lack of clarity around the direction of interest rates. In addition to trying to handicap election-year Fed actions, a number of variables also add further complexity to the outlook, including U.S. economic uncertainty, growing U.S. debt levels, and geopolitical tensions in Ukraine, the Middle East, and in East Asia, in our view.
Richard Jay Mack: As it relates to commercial real estate, we believe the general outlook for the industry will remain challenging for the remainder of the year and into 2025.
Richard Jay Mack: We expect continued headwinds in the higher rate environment, and because of the lack of clarity around the direction of interest rates.
Richard Jay Mack: In addition to trying to handicap election year fed actions are number of variables also add further complexity to the outlook, including U S economic uncertainty growing U S debt levels and geopolitical tensions in Ukraine, the middle East and in East Asia.
Richard Jay Mack: In our view.
Richard Jay Mack: It is this uncertainty.
Richard Jay Mack: It is just the uncertain environment, especially around interest rates, that has placed the real estate capital markets in stasis. No one wants to acknowledge value decline if interest rate cuts are just around the corner. Against this backdrop, we have been observing slowly increasing cap rates and decreasing real estate valuations that, to date, reflect not where short-term rates are but where investors expect them to sell. Sellers and buyers are dancing, but not committing to each other, resulting in vastly lower transaction volumes that have not only limited investors' ability to refinance and recapitalize properties but have also resulted in fewer new loans issued and bonds available.
Richard Jay Mack: Environment, especially around interest rates that has placed the real estate capital markets and stations.
Richard Jay Mack: No one wants to acknowledge value declines intra.
Richard Jay Mack: Interest rate cuts just around the corner.
Richard Jay Mack: Against this backdrop, we have been observing slowly increase in cap rates and decreasing real estate valuations that to date reflect not where short term rates are but where investors expect them to sell.
Richard Jay Mack: Sellers and buyers are dancing, but not committing to each other.
Richard Jay Mack: Resulting in vastly lower transaction volumes that are not only limited investors' ability to refinance and recapitalize properties, but has also resulted in less new loans issued and bonds available.
Richard Jay Mack: This lack of product has been driving down lending spreads for many types of real estate finance despite valuation uncertainty. While this is helpful, it does not yet reflect a recovery. Similar to previous cycles, real estate investors are awaiting the reemergence of real transaction volume and an active real estate capital market to provide confidence and a much-needed liquidity infusion. This may be starting, as evidenced by tightening spreads and investors looking to the revalued real estate sector for attractive risk-adjusted returns. However, that is by no means conclusive. Real estate transactions across almost all asset classes remain muted relative to the historical norm.
Richard Jay Mack: This lack of product has been driving down lending spreads for many types of real estate financing despite valuation uncertainties.
Richard Jay Mack: While this is helpful. It does not yet reflect a recovery.
Richard Jay Mack: Similar to previous cycles real estate investors are waiting the reemergence of real transaction volume and an active real estate capital market to provide confidence and a much needed liquidity infusion.
Richard Jay Mack: This may be starting as evidenced by tightening spreads and investors looking to the re valued real estate sector for attractive risk adjusted returns that is by no means conclusive.
Richard Jay Mack: Real estate transactions across almost all asset classes remained muted relative to historical norms.
Richard Jay Mack: As you know from prior calls, CMTG has been executing its business strategy through the lens of a higher for longer rate environment. However, we continue to believe that a conservative and defensive stance is prudent, given the uncertainty around where interest rates and loan spreads will ultimately settle. Higher interest rates translate into higher financing costs for borrowers, with many continuing to contend with negative leverage. Therefore, we expect repayments to be slow, and repayment timing less predictable.
Richard Jay Mack: As you know from prior calls <unk> has been executing our business strategy through the lens of a higher for longer rate environment.
Richard Jay Mack: We continue to believe that a conservative and defensive stance is prudent given the uncertainty around where interest rates and loan spreads will ultimately settle.
Richard Jay Mack: Higher interest rates that translate into higher financing cost for borrowers with many continuing to contend with negative leverage.
Richard Jay Mack: Therefore, we expect repayments to be slow and repayment timing less predictable.
Richard Jay Mack: Further, it is likely that these trends will continue to impact our borrowers and portfolio. And as we look ahead, we remain committed to loan resolutions and optimizing shareholder value. During this period, we anticipate that proactive asset management will remain a key focus for our. As we work with borrowers, we expect them to not only demonstrate an operational commitment to their assets but a financial commitment to them. For example, during the first quarter, we received repayments on two construction loans, notably one of which was a four-rated loan.
Richard Jay Mack: Further it is likely that these trends will continue to impact our borrowers and portfolio and as we look ahead, we remain committed to loan resolutions and optimizing shareholder value.
Richard Jay Mack: During this period and we anticipate the proactive asset management will remain a key focus for our team.
Richard Jay Mack: As we work with borrowers, we expect them to not only demonstrate and operational commitment to their assets, but a financial commitment to them. For example, during the first quarter. We received repayments on two construction loans, notably one of which was a four rated loan.
Richard Jay Mack: We believe that this not only speaks to the liquidity that is starting to return to the market but also to the quality of the sponsorships and the assets underlying our loan.
Richard Jay Mack: We believe that this not only speaks to the liquidity that is starting to return to the market, but also to the quality of the sponsorships and the assets underlying our loans.
Richard Jay Mack: I would now like to turn the call over to Mike.
John Michael McGillis: Thank you, Richard. For the first quarter of 2024, CMTG reported a gap net loss of $0.39 per share and a distributable loss of $0.12 per share. Distributable earnings per share prior realized losses were $0.20 per share compared to $0.31 per share for the prior quarter. The quarter-over-quarter change is primarily a result of the impact of seasonality on the New York City REO hotel portfolio, which accounted for an $0.08 per share swing, as well as three loans placed on non-accrual during the first quarter, which negatively impacted earnings by $0.03 per share.
Richard Jay Mack: Thank you Richard for the first quarter of 2020 for CMT <unk> reported a GAAP net loss of 39 per share and a distributable loss of <unk> 12 per share.
John Michael McGillis: Distributable earnings per share prior to realized losses were <unk> <unk> per share compared to 31 per share for the prior quarter the quarter over quarter change was primarily a result of the impact of seasonality on the New York City area of hotel portfolio, which accounted for <unk> <unk> per share swing as.
John Michael McGillis: Well as three loans placed on non accrual during the first quarter, which negatively impacted earnings by <unk> <unk> per share.
John Michael McGillis: We'll discuss the non-accrual loans in more detail later on the call. As previously discussed, the first quarter is generally the weakest quarter for New York City hotels, particularly compared to the traditionally strong performance in the fourth quarter.
John Michael McGillis: We will discuss non accrual loans in more detail later on the call.
John Michael McGillis: As previously discussed the first quarter is generally the weakest quarter for New York City hotels, particularly compared to traditionally strong performance in the fourth quarter.
John Michael McGillis: CMTG's loans held for investment portfolio decreased to $6.7 billion at March 31st from $6.9 billion at December 31st. The quarter over quarter change is attributable to follow-on funding of $143 million, more than offset by the impact of loan repayments totaling $146 million and the reclassification of a $216 million rated loan to held for sale. Additionally, as mentioned on our last earnings call, at year-end 2023, we classified three loans secured by a variety of asset classes as held for sale and completed the sales of such loans during the first quarter of 2024 for $262 million. The sales price represented 96% of the loans' UPB.
John Michael McGillis: <unk> loans held for investment portfolio decreased to $6 7 billion at March 31 from six.
John Michael McGillis: $6 9 billion at December 31.
John Michael McGillis: The quarter over quarter change is attributable to follow on fundings of $143 million.
John Michael McGillis: More than offset by the impact of loan repayments totaling $146 million and the reclassification of the 216 million four rated loans to held for sale.
John Michael McGillis: Additionally, as mentioned on our last earnings call at year end 2023, reclassified three loans secured by a variety of asset classes as held for sale and completed the sales of such loans during the first quarter of 2024 for $262 million.
John Michael McGillis: The sales price represented 96% of the loans <unk>.
John Michael McGillis: As noted, this loan sale did not impact the first quarter loans held for investment portfolio because these loans were classified as held for sale at year end, reflected in our first quarter results due to the resolutions of two four-rated loans. The first $104 million construction loan on a hospitality asset located in New York City had been risk rated for since 2020. During the quarter, we received a full repayment of this loan, including all contractual interest as well as some default interest and late fees.
John Michael McGillis: Noted this loan sale did not impact the first quarter loans held for investment portfolio. Because these loans were classified as held for sale at year end.
John Michael McGillis: Reflected in our first quarter results of the resolutions of two four rated loans.
John Michael McGillis: The first $104 million construction loan on our hospitality asset located in New York City had been risk rated four since 2020.
John Michael McGillis: During the quarter, we received full repayment of this loan, including all contractual interest as well as some default interest and late fees. Despite the borrowers delay in executing its business plan. The borrower was able to identify and transact with another lender to refinance our position.
John Michael McGillis: Despite the borrower's delay in executing its business plan, the borrower was able to identify and transact with another lender to refinance our position. We believe the PMTG's successful outcome with this loan speaks well to our conviction on collateral values and also suggests potential signs of a more normalized capital markets environment. The second loan, a $216 million construction loan secured by two multifamily assets in Southern California, with a remaining unfunded commitment of $45 million, had been downgraded to a four-risk rating in the second quarter of 2023 and placed on non-accrual status last quarter. After careful consideration, we concluded that a loan sale was the best course of action.
John Michael McGillis: We believe the clean mtge's successful outcome with this low and speaks well to our conviction on collateral values and also suggest potential signs of a more normalized capital markets environment.
John Michael McGillis: The second loan of $216 million construction loan secured by two multifamily assets in southern California, with a remaining unfunded commitment of $45 million has been downgraded to four risk rating in the second quarter of 2023 and placed on non accrual status last quarter.
John Michael McGillis: After careful consideration we concluded that a loan sale was the best course of action and in April we completed the sale of a loan at 80% WPB.
John Michael McGillis: And in April, we completed the sale of the loan at 80% of UPB. Our first quarter balance sheet reflects this loan as held for sale and includes a $42 million principal charge-off. The sale enabled us to add liquidity, reduce debt levels, and reduce our future funding obligations. While our sponsor has the multifamily development expertise to take over these types of assets, after careful consideration, we decided that there were more effective uses of the capital and resources required to complete construction and stabilize and sell these assets. At March 31st, multifamily assets represented our largest exposure at 40% of our portfolio. We continue to have conviction in the long-term outlook of the sector, with a particular focus on select high-growth markets.
John Michael McGillis: Our first quarter balance sheet reflects this loan as held for sale net of a $42 million principal charge off.
John Michael McGillis: Executing the sale enabled us to add liquidity reduced debt levels and reduce our future funding obligations.
John Michael McGillis: Our sponsor has the multifamily development expertise to take over these types of assets. After careful consideration, we decided that there were more effective uses of the capital and resources required to complete construction and stabilize and sell these assets.
John Michael McGillis: At March 31, multifamily assets represented our largest exposure at 40% of our portfolio.
John Michael McGillis: We continue to have conviction in the long term outlook of the sector with a particular focus on select high growth markets.
John Michael McGillis: As previously mentioned, we're seeing some borrowers navigating the pressures of negative leverage, and we are actively monitoring these loans and working with our borrowers. During the quarter, we placed three multifamily loans with a combined UPB of $186 million on non-accrual status. The first is a $97 million loan collateralized by a 376-unit multifamily complex located in the Las Vegas MSA. The second is a $50 million loan collateralized by a 206-unit multifamily complex located in Phoenix, Arizona.
John Michael McGillis: As previously mentioned, we are seeing some borrowers navigating the pressures of negative leverage and we are actively monitoring these loans and working with our borrowers.
John Michael McGillis: And the third is a $39 million loan collateralized by a 370-unit multifamily complex located in Dallas, Texas. We continue to maintain a long-term favorable outlook on the multifamily sector, and our sponsors' deep experience as an owner, operator, and developer has informed our asset management approach with regard to these non-accrual loans. We have been aggressively pursuing our remedies and want to highlight that compared to the multifamily construction loan we sold, these three new non-accrual loans, which all share the same sponsor, are vastly different.
John Michael McGillis: During the quarter, we placed three multifamily loans with a combined <unk> of $186 million on non accrual status.
John Michael McGillis: First is a 97 million loans collateralized by a 376 unit multifamily complex located in the Las Vegas MSA.
John Michael McGillis: Is it $50 million loan collateralized by a 206 unit multifamily complex located in Phoenix, Arizona.
John Michael McGillis: And the third is a $39 million loan collateralized by a 370 unit multifamily complex located in Dallas, Texas.
John Michael McGillis: We continue to maintain a long term favorable outlook on the multifamily sector and our sponsor's deep experience as an owner operator and developer has informed our asset management approach with regard to these non accrual loans.
John Michael McGillis: We have been aggressively pursuing our remedies and want to highlight that compared to the multifamily construction loans. We sold these three new non accrual loans, which I'll share the same sponsor are vastly different.
John Michael McGillis: These three new non-accrual loans are all cash flowing operating properties with solid occupancy, which were downgraded primarily as a result of the borrower's inability to contend with the impact of higher finance and costs on their ability to execute their business plan. By comparison, pursuing foreclosure on these assets requires much less capital resources; then, the in-process construction loans may translate to improved earnings relative to holding the loans on non-accrual status in the near term.
John Michael McGillis: These three new non accrual loans are all cash flowing operating properties with solid occupancy, which were downgraded primarily as a result of the borrowers inability to contend with the impact of higher financing costs on their ability to execute their business plan.
John Michael McGillis: By comparison pursuing foreclosure for these assets requires much less capital resources.
John Michael McGillis: Then the in process construction loans that may translate to improved earnings relative to holding the loans on non accrual status in the near term.
John Michael McGillis: With this in mind, we believe there may be select opportunities to foreclose on multifamily assets with in-place cash flow and execute the borrower's original business plan, but at a much lower cost, basis, and leverage level. Total CESA reserves as a percentage of UPB increased to 2.6% compared to 2.2% for the prior quarter.
John Michael McGillis: With this in mind, we believe there may be select opportunities to foreclose on multifamily assets with in place cash flow and execute the borrowers original business plan, but at a much lower cost basis and leverage levels.
John Michael McGillis: Total <unk> reserves as a percentage of <unk> increased to two 6% compared to two 2% for the prior quarter specific seasonal reserves represented 22, 9% <unk>.
John Michael McGillis: Specific CECL reserves represented 22.9% of the UPB of our loans with a specific CECL reserve. The general CECL reserve of 1.6% was comprised of 3.1% of the UPB on four rated loans and 0.9% of the UPB on the remaining loans. During the quarter, we recorded provisions for CECL reserves of $70 million, of which $42 million relates to the realized loss on the previously mentioned loan that was transferred to help for sale and sold in April 2024.
John Michael McGillis: Of our loans with a specific seasonal reserve.
John Michael McGillis: General seasonal reserve of one 6% was comprised of three 1% of the <unk> on four rated loans and 0.9% of the <unk> on the remaining loans.
John Michael McGillis: During the quarter, we recorded provisions for seasonal reserves of $70 million of which $42 million relates to the realized loss on the previously mentioned loan that was transferred to held for sale and sold in April 2024.
John Michael McGillis: Now turning to financing and liquidity. At March 31, we reported $265 million in total liquidity, which includes cash and approved and undrawn credit capacity. Unencumbered loans totaled $419 million, of which 93% were senior loans. Compared to last quarter, our portfolio's unfunded loan commitment declined from $1.1 billion to $890 million. Of the $890 million of unfunded loan commitments, approximately $115 million relates to loans for which we do not believe the borrower will be able to meet conditions precedent to funding, reducing our expected future funding levels to $775 million.
Speaker Change: Now turning to financing and liquidity at March 31, we reported $265 million in total liquidity, which includes cash and approved and Undrawn credit capacity on.
John Michael McGillis: Unencumbered loans totaled $419 million of which 93% were senior loans.
John Michael McGillis: Paired to last quarter, our portfolio's unfunded loan commitments declined from $1 1 billion to $890 million.
John Michael McGillis: Of the $890 million of unfunded loan commitments of approximately $115 million relates to loans, which we do not believe the borrower will be able to meet conditions precedent to funding.
John Michael McGillis: <unk> are expected future funding levels to $775 million to fund. This we have $453 million of in place financing commitments, leaving a projected equity our net funding requirement of $321 million, which we expect to fund over the course of approximately $2 <unk>.
John Michael McGillis: To fund this, we have $453 million of in-place financing commitments, leaving a projected equity or net funding requirement of $321 million, which we expect to fund over the course of approximately 2.7 years. As of March 31st, we had total financing capacity of $7.2 billion with aggregate outstanding balances of $5.5 billion. Our overall financing balance declined $226 million from the prior quarter, primarily due to a combination of loan sales and loan repayments, as well as proactive voluntary deleveraging of specific assets.
John Michael McGillis: Seven years.
John Michael McGillis: At March 31, we had total financing capacity of $7 2 billion with aggregate outstanding balances of $5 5 billion.
John Michael McGillis: Our overall financing balance declined $226 million from the prior quarter, primarily due to a combination of loan sales and loan repayments as well as proactive voluntary deleveraging of specific assets.
John Michael McGillis: During the quarter, we made voluntary deleveraging payments of $82 million, bringing this total to $439 million since the first quarter of 2023. As a result, at March 31, 4-rated loans and 5-rated loans maintained materially lower financing advance rates of 59% and 47%, respectively, compared to 66% for loans with a 3-risk rating.
John Michael McGillis: During the quarter, we made voluntary deleveraging payments of $82 million, bringing this totaled $439 million since the first quarter of 2023.
John Michael McGillis: As a result at March 31, four rated loans and five rated loans maintained materially lower financing advance rates of 59% and 47%, respectively compared to 66% for loans with the three risk rating.
John Michael McGillis: As Richard mentioned, we continue to manage the portfolio in the context of a higher-for-longer rate environment. We believe that our management team has deep industry and multi-cyclical experience to navigate through this challenging capital markets and credit environment. In addition, we believe that our sponsors' experience as an owner, operator, and developer provides us with additional market insights to effectively evaluate and pursue a broader range of alternatives and maximize recovery in various situations.
John Michael McGillis: As Richard mentioned, we continue to manage the portfolio in the context of a higher for longer rate environment.
John Michael McGillis: We believe that our management team has deep industry and multi cyclical experience to navigate through this challenging capital markets and credit environment.
John Michael McGillis: In addition, we believe that our sponsors experience as an owner operator and developer provides us with additional market insights to effectively evaluate and pursue a broader range of alternatives and maximize recovery in various situations.
John Michael McGillis: Looking ahead, our priorities continue to be focused on liquidity, proactive deleveraging, loan resolutions, and proactive asset management. Over the past several quarters, we've demonstrated our commitment to liquidity management and loan resolutions from loan sales to pursuing our remedies, executing with an objective of maximizing recoveries in a challenging environment. Operator, I would now like to open the call to questions.
John Michael McGillis: Looking ahead, our priorities continue to be focused on liquidity proactive deleveraging loan resolutions and proactive asset management.
John Michael McGillis: Over the past several quarters, we've demonstrated our commitment to liquidity management and loan resolutions from loan sales to pursuing our remedies executing with an objective of maximizing recoveries in a challenging environment.
Operator: Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Rick Shane with JPMorgan. Your line is open, please go ahead.
Speaker Change: Operator, I would now like to open the call for questions.
Speaker Change: Thank you.
Operator: To ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press star followed by <unk>.
Operator: To ask a question, please ensure devices and mutated lifecycle.
Operator: Our first question comes from Rick Shane with Jpmorgan. Your line is open. Please go ahead.
Richard Barry Shane: Thanks for taking my questions this morning, guys. Look, I think the number one question that comes up is obviously the ability to sustain the dividend or the desirability to sustain the dividend. You guys noted DEA excluding realized losses or excluding losses of $0.20. That's a nickel below the current dividend run rate. There's obviously dragged from 650, I apologize, approximately $650 million of non-accruals.
Richard Barry Shane: Thanks for taking my questions. This morning, guys.
Richard Barry Shane: I think the.
Richard Barry Shane: Number one question that comes up is obviously the ability to sustain the dividend and the desirability to sustain the dividend.
Richard Barry Shane: You guys noted.
Richard Barry Shane: Excluding realized losses or excluding losses of 20.
Richard Barry Shane: Our nickel below the.
Richard Barry Shane: Current dividend run rate.
Richard Barry Shane: Obviously drag from 650, I apologize approximately $650 million on non accruals.
Richard Barry Shane: Is the dividend does it makes sense to sustain at these levels given.
Richard Barry Shane: The average to preserve liquidity.
John Michael McGillis: Thanks, Rick. This is Mike.
Richard Barry Shane: Thanks, Rick This is Mike good question.
John Michael McGillis: Good question. Now I think this is something that we look at each quarter with our board. When looking at Q1, I think it's important to keep in mind that the distributable earnings pre-credit were adversely impacted by seasonality of the New York City hotel portfolio. So adjusting that to a normalized level, we get much closer to the $0.25 dividend level. But when we look at this work, we're trying to look at really what our Dividend Paying Capacity is over the medium to long term.
Richard Barry Shane: I think this is something that we look at each quarter with our with our board.
Mike: When looking at Q1, I think it's important to keep in mind that the distributable earnings pre credit were adversely impacted by seasonality.
John Michael McGillis: New York City Hotel portfolio, so adjusting that to a normalized level.
John Michael McGillis: We get much closer to the 25 cent dividend.
John Michael McGillis: Dividend level, but when we look at this we're trying to look at really what are.
John Michael McGillis: Dividend paying capacity is over the medium to long term.
John Michael McGillis: As part of setting a dividend rate, but obviously, we look at this every quarter with our board and look at, you know, multiple scenarios that we may be facing across the portfolio. Each quarter, so this is something that we continue to look at with our board regularly.
John Michael McGillis: As part of setting a dividend rate, but obviously, we look at this every quarter with our board.
John Michael McGillis: And looking at multiple scenarios that we may be facing across the portfolio.
John Michael McGillis: Each quarter so.
John Michael McGillis: Something that we.
John Michael McGillis: To look at with our board regularly.
Richard Barry Shane: Got it. I appreciate that. And it is a good point on the seasonality of the hotel. Look, the other question that we've received a couple of times from investors is, obviously, there was a very, very quick migration from a four-rated loan to a realized loss. And again, I appreciate that when you move them to held for sale, that and the numbers. Can you help us understand what the development was that caused you guys to act so quickly?
Speaker Change: Got it I appreciate that and then it's a good point on the seasonality on the hotel.
John Michael McGillis: The other question that we've received a couple of times from investors is.
Richard Barry Shane: Obviously, there was a very very quick migration from.
Richard Barry Shane: A four rated loan to a realized loss.
Richard Barry Shane: And again I appreciate that when you move them to held for sale of that debt.
Richard Barry Shane: Paul things forward, that's actually helpful in understanding the numbers.
Richard Barry Shane: But can you just help us understand a little bit about really what the development was there.
Richard Barry Shane: It caused you guys to act so quickly.
Priyanka Garg: Yeah. Hi Rick. It's Priyanka.
Richard Barry Shane: Yeah, Hi, Rick it's Priyanka I'll I'll take that one.
Richard Barry Shane: It was really just new information that was received at yearend we were pursuing a foreclosure on that asset we were focused on owning at we had.
Priyanka Garg: I'll take that one. It was really just new information that was received. So at year-end, we were pursuing a foreclosure on that asset. We were focused on owning it. We had a foreclosure date that was publicly available, and as we approached that foreclosure date during the first quarter, a number of credible buyers began approaching us and saying, "We're interested in buying this loan from you." And so, in conjunction with our development team, we spent a lot of time and did a lot of analysis on the trade-offs between taking the discount today, getting the liquidity today versus holding the asset, foreclosing on it, developing, stabilizing, you know, which would result in a non-earning asset for an extended period of time.
Priyanka Garg: Foreclosure date that with publicly available and as we approach that foreclosure date during the first quarter.
Priyanka Garg: And so we concluded that the price that we were engaged in, and particularly with the credible buyers who could close quickly, it was a really good price relative to the amount of profit that could potentially be realized, particularly when you take into account the amount of time and the impact on earnings. So that was really the migration; it was just new information that was available to us.
Priyanka Garg: A number of credible buyers began approaching us and saying we're interested in buying this lung front now and so in conjunction with our development team. We spent a lot of time and did a lot of analysis on the.
Priyanka Garg: The tradeoffs between taking the discount today.
Priyanka Garg: Getting the liquidity today first is holding the asset for closing on it developing stabilizing which would result in a non earning asset for an extended period of time and so we concluded that the price the price talk that we were engaged with and particularly with the credible buyers who could close quickly it.
Priyanka Garg: Really it was a good price relative to the amount of profit that could potentially be realized particularly when you take into account the amount of time and the impact on earnings. So that was really the migration. It was it was just.
Priyanka Garg: New information that was available to us.
Richard Barry Shane: Priyanka, that's really helpful just in understanding sort of the thought process and, frankly, the scenarios that you guys face. And I think that, you know, that's probably not unique. You're gonna have to make those decisions over and over again. And I appreciate the context on that. Thank you, guys.
Speaker Change: Okay. That's really helpful. Just in understanding sort of the thought process and frankly the.
Richard Barry Shane: Scenarios that you guys face and I think.
Richard Barry Shane: That's probably not unique youre going to have to make those decisions over and over again and I. Appreciate the context on that thank you guys.
Priyanka Garg: Thanks, Rick.
Operator: We now turn to Doug Harter with UBS. Your line is open. Please go ahead.
Richard Barry Shane: We now turn to Doug Harter with UBS. Your line is open. Please go ahead.
Douglas Michael Harter: Turning back to liquidity, you know, and last quarter you modified some of your interest coverage covenants. Can you just give us an update as to kind of where you stand on those covenants there? And then just around your indebtedness covenants, you know, does that include all asset-level debt and kind of your level of comfort around that covenant as well?
Douglas Michael Harter: Thank you.
Douglas Michael Harter: Turning back to liquidity.
Douglas Michael Harter: Last quarter you had.
Douglas Michael Harter: Modified some of your your interest coverage covenants can you just give us an update as to kind of where you stand on those covenants. There and then just around your indebtedness covenants, yes kind of.
Douglas Michael Harter: Does that include all asset level debt and kind of your level of comfort around that covenant as well.
John Michael McGillis: Sure, thanks Doug. That's a good question. Yeah, we complied with all of our covenants at the end of Q1, as outlined in our Thank you. We do expect to have to work with our lenders, in particular repo lenders, not the TLB investors, on a modification of our interest. Covenant Mechanics. We've been having very constructive dialogues with them, and expect that we'll be able to work something out. And then we're comfortably passing all of our other covenants at this time as well. So, you know, we expect to be able to work through these things in the ordinary course with our covenants.
Speaker Change: Sure. Thanks, Doug Good question.
Douglas Michael Harter: Yes, we complied with all of our covenants at the end of Q1 as outlined in our.
John Michael McGillis: 10-Q, we do expect to have to work with our lenders in particular repo lenders not not to invest.
John Michael McGillis: Investors on a.
John Michael McGillis: Modification of our interest.
John Michael McGillis: Covenant mechanics.
John Michael McGillis: Been having very constructive dialogues with them.
John Michael McGillis: Expect that we'll be able to work something out and then where we're comfortably passing.
John Michael McGillis: All of our other covenants.
John Michael McGillis: At this time as well so we expect to be able to work through these things in the ordinary course with our Counterparties.
John Michael McGillis: Great. Are there any tradeoffs that you have to make in those conversations, or, you know? If you just go back to the prior ones so you don't have to give away what you're currently negotiating. Um, no. I mean, I think
John Michael McGillis: Great.
John Michael McGillis: Any tradeoffs that you have to make and those conversations are.
Speaker Change: If you just go back to the primary ones. So you don't have to give away what you're currently negotiating.
John Michael McGillis: Um, no, I mean, I think a lot of it is really just being a responsible counterparty, maintaining an open and transparent dialogue with our lenders. And as noted, we've been, you know, pretty aggressively deleveraging our portfolio, particularly the repo financings over the course of the last couple of years, the past five quarters, uh... and I think that kind of behavior pays benefits as you're working through these kind of things with your clients. Very helpful. Thank you.
John Michael McGillis: Yeah.
John Michael McGillis: No I mean, I think it's they take a lot of it is really just being a responsible counterparty maintaining.
John Michael McGillis: The open and transparent dialogue with our with our lenders.
John Michael McGillis: And as noted we have been.
John Michael McGillis: Pretty aggressively deleveraging our portfolio, particularly the repo financings over the course.
John Michael McGillis: The past five quarters.
John Michael McGillis: And I think that kind of behavior.
John Michael McGillis: Pes pays benefits as Youre working through these kind of things with your Counterparties.
John Michael McGillis: Very helpful. Thank you.
Operator: Our next question comes from Don Fandetti with Wells Fargo. Your line is open, please go ahead. Yes, can you talk about it looks like the $400 million...
John Michael McGillis: Our next question comes from Tom <unk> with Wells Fargo. Your line is open. Please go ahead.
John Michael McGillis: Yeah.
Donald James Fandetti: Yes can you talk about it looks like the $400 million multifamily, California alone was moved to a four.
Donald James Fandetti: This quarter can you talk about that migration.
Operator: Yeah.
Operator: Yeah.
Donald James Fandetti: Yeah, hi Don, it's Priyanka. That is, you know, we had a borrower who had an interest rate cap that they needed to purchase during the first quarter. As we're seeing with some borrowers, there's not, you know, a hesitancy to protect at the levels that they are at, and so they wanted to approach us about modification discussions. We're in those discussions with the borrower right now, but given that messaging from them, we did migrate them to a foreign country on to the watch list prior to this. They had been protecting each month and putting in new capital. You know, we're optimistic about the resolution there. It's an excellent asset, high quality, you know, best in class kind of property.
Operator: Yes, Hi, Dan it's Priyanka.
Donald James Fandetti: That is we had a borrower who had a.
Donald James Fandetti: <unk>.
Donald James Fandetti: Crist rate cap that they needed to purchase during the first quarter.
Donald James Fandetti: As we're seeing with some borrowers theirs.
Donald James Fandetti: No hesitancy to protect at the levels that they are at and so on.
Donald James Fandetti: They wanted to approach us about modification discussions we're in those discussions with the borrower aren't right now but.
Donald James Fandetti: Given that messaging from them, we did migrate them to a foreign onto the watch list prior to that they had been protecting each month and putting in new capital.
Donald James Fandetti: We're optimistic about the resolution there.
Donald James Fandetti: Excellent asset high quality.
Donald James Fandetti: Best in class kind of property. So we're well pursue those discussions late where we're deep in them right now with the with the borrower and well.
Priyanka Garg: So we'll pursue those discussions where we're deep in them right now with the borrower, and we'll, you know, have some sort of direction or resolution in the coming quarter. So it sounds like, at least as you sit here today, it doesn't feel like it's going to a five at this point. Based on what we know today, no.
Priyanka Garg: Some sort of direction or a resolution in the coming quarters.
Priyanka Garg: So it sounds like at least as you sit here today it doesn't feel like it's going to a five.
Priyanka Garg: This points.
Priyanka Garg: Based on what we know today now.
Speaker Change: Okay. Thanks.
Operator: We now turn to Steve Delaney with J&P Securities. Your line is open, please go ahead.
Priyanka Garg: We now turn to Steve Delaney with JMP Securities. Your line is open. Please go ahead.
Steve DeLaney: Good morning, and thank you for taking my question.
Speaker Change: Good morning, and thank you for taking my questions.
Steve DeLaney: I want to ask about loan sale activity.
Steven Cole DeLaney: Wanted to ask about loan sale activity, we've observed that.
Steve DeLaney: Claros and TRTX TPG have been the two commercial mortgage rates most active in this market, so I wanted to ask about that.
Steven Cole DeLaney: <unk> and Crts TPG had been the two commercial mortgage REIT is most active in this market.
Steve DeLaney: And it's sort of wanted to ask about that the 172 million Mike that was on the books at March 31, how many loans does that represent.
John Michael McGillis: The $172 million, Mike, that was on the books at March 31, how many loans does that represent? That is, It's two loans to the same sponsor on two separate pieces of cross collateral. Okay, and then you sold three in the fourth quarter, I believe, you know, as well.
John Michael McGillis: That is that is.
John Michael McGillis: Its two loans to the same sponsor.
John Michael McGillis: On two separate pieces of collateral cross collateralized so.
John Michael McGillis: And then you sold three in the fourth quarter I believe.
Speaker Change: So yes, yes, yes.
John Michael McGillis: Yes, three loans is, Go ahead, go ahead. Now it's going to say we put three loans in the loans help for six, four. And then we view this, this other, we completed the sale in April; that's in loans help for sale at the end of Q1. Do that as sort of one loan, even though it's two loans, same sponsor across, I guess the question is, since this is a bit of a new topic, you know, in asset management, it's part of working through the problems and, I guess, working through this down cycle that we're in in real estate.
John Michael McGillis: Yes.
John Michael McGillis: Three loans as well.
Speaker Change: Go ahead.
Speaker Change: No I was going to say, we put three loans into the loans held for sale.
John Michael McGillis: Q4.
John Michael McGillis: And then we view this as others that we completed the sale on April fits in loans held for sale at the end of Q1, SKU that is sort of one loan even though its two loans same sponsor cross collateralized.
Speaker Change: So got it.
John Michael McGillis: I guess the question.
John Michael McGillis: This is a bit of a new topic.
John Michael McGillis: The.
John Michael McGillis: As part of the asset management part of working through the problems and I guess working through this.
John Michael McGillis: But if you could just offer your observations, you know, having done this for you and Richard for many years, how deep is this loan sale market? And who are the buyers? Are they credit hedge funds? Or are these real property investors that are looking to use a loan to own type of strategy to acquire attractive properties for investment? I just appreciate your big picture thoughts on that topic.
John Michael McGillis: Down cycle that we're in a real estate, but if you could just offer your observations having done this for you and Richard for many years, how deep is this loan sale market and who are the buyers are they credit hedge funds or are these real property investors that are looking to use.
John Michael McGillis: A loan to own type of strategy to acquire attractive properties for investments purchased.
John Michael McGillis: Shake your big picture thoughts on that.
John Michael McGillis: Topic. Thank you.
John Michael McGillis: Thank you. Sure. Sure, Steve. You want to go to it, Mike? Okay. You can go ahead. We'll both be the same.
Speaker Change: Sure sure.
Speaker Change: You want to go to it Mike Okay.
John Michael McGillis: Okay.
Speaker Change: So go ahead.
Mike: Be the same.
John Michael McGillis: Okay, um... So I think it's a combination; there are many different buyers, as relates to loans that we've sold kind of very close to par, and there's been quite a bit of them, or at par, those are primarily hedge fund type of buyers who really are having a hard time trying to play what they view as a distressed real estate market because there's not as much to do in the market as one would expect.
John Michael McGillis: Okay.
Mike: So I think it's a combination.
John Michael McGillis: Theres many different buyers.
John Michael McGillis: As it relates to loans that we've sold.
John Michael McGillis: Very close to par and theres been quite a bit of them or at par.
John Michael McGillis: Those are primarily hedge fund type of buyers who.
John Michael McGillis: Really are having a hard time trying to play with.
John Michael McGillis: View as very.
John Michael McGillis: As a distressed real estate market.
John Michael McGillis: Theres not as much to do in the market as one would expect.
John Michael McGillis: As it relates to, certainly the sale that we just made at a significant discount that was to a family office with a development company in tow. And their feeling is that this is a way to get into an asset at a significant discount, understanding that they're going to have to cut through quite a bit of hair to make that happen. So I think that there are a lot of people out there searching for really high-returning opportunities, and in a market where there's very little transaction volume, there's just not that much distress out there.
John Michael McGillis: As it relates to.
John Michael McGillis: Certainly the sale that we just made at a significant discount that was to a family office.
John Michael McGillis: With a development.
John Michael McGillis: With a developer and toe.
John Michael McGillis: And their feeling is this is this is a way to get into an asset at a significant discount understanding that they're going to have to cut through quite a bit of hair to make that happen.
John Michael McGillis: So I think.
John Michael McGillis: That there are a lot of people out there searching for.
John Michael McGillis: Really high returning opportunities.
John Michael McGillis: And in a market, where there is very little transaction volume.
John Michael McGillis: Not that much distress out there and so the market feels quite deep relative to the product that's available.
John Michael McGillis: And so the market feels quite deep relative to the product that's available. I think if more assets were available for sale, that might feel a little bit different. But right now, there does seem to be adequate, if not extensive, demand to buy loans, whether they are kind of at relatively large discounts or at par.
John Michael McGillis: Think of more assets were available for sale.
John Michael McGillis: That might feel a little bit different but right now there.
John Michael McGillis: Seem to be adequate if not extensive.
John Michael McGillis: Demand to buy loans, whether they be kind of it relatively large discounts.
John Michael McGillis: Sure.
John Michael McGillis: That's very helpful, Collar, and probably the most encouraging comments I've heard about the capital flows around commercial real estate and commercial mortgages.
John Michael McGillis: That's very helpful color and product probably the most encouraging comments I've heard about the capital flows around commercial real estate in the commercial mortgage Reits and in some time so.
Steve DeLaney: Thank you for your comments.
Speaker Change: Great the opportunity to discuss it in and thank you for your comments.
Speaker Change: Thanks, Steve.
Operator: Our final question comes from Jade Rahmani with KBW. Your line is open, please go ahead.
Steve DeLaney: Our final question comes from Jade Rahmani with <unk>. Your line is open. Please go ahead.
Steve DeLaney: Sure.
Jade Joseph Rahmani: On the Connecticut office loan totaling $150 million, could you please give an update? It was originated before COVID, so presumably, you know, the underwriting did not factor in today's environment.
Jade Joseph Rahmani: Thank you very much.
Jade Joseph Rahmani: The Connecticut office loan totaling $150 million could you. Please give an update it was originated before COVID-19. So presumably the underwriting did not factor in today's environment.
Jade Joseph Rahmani: Additionally, the maturity date was in February of this year I was wondering also to $150 million, so sizable loan which would suggest it's in a large market, perhaps Stanford Hartford.
Jade Joseph Rahmani: Additionally, the maturity date was in February of this year. I was wondering also if it's $150 million, so it's a sizable loan, which would suggest it's in a large market, perhaps Stanford or Hartford. And also, if you could comment on, you know, what's going on with the leasing of that asset.
Jade Joseph Rahmani: And also if you could comment on what's going on with the leasing of that asset.
Priyanka Garg: Yeah, hi. Hi, Jade. Thank you for the question. It's Priyanka.
Jade Joseph Rahmani: Yeah, Hi, Hi, Jade. Thank you for the question, it's Priyanka I'll take that one.
Priyanka Garg: I'll take that one. So it's in. It did mature during the quarter. We are very close to extending that loan. There's a lot going on at the sponsorship level where, you know, I don't wanna disclose too much, but there's a transaction coming down the pike. So our modification with the borrower is likely to be a short-term one followed by then a, you know, more significant modification after that, depending on the status of this transaction that I'm referring to.
Jade Joseph Rahmani: So it's.
Priyanka Garg: It's in it didn't mature during the quarter we are.
Priyanka Garg: Very close to extending that loan there's a lot going on at the sponsorship level, where I don't want to disclose too much but there is a.
Priyanka Garg: At transaction coming down the Pike, so are our modification with the borrowers likely to be a short term one followed by then.
Priyanka Garg: You know more significant modification after that depending on the status of this transaction that I'm referring to.
Priyanka Garg: That said, it has, you know, leasing clearly has not been on par with what was originally underwritten. That said, they have done a very good job of retaining tenants. Tenants are very happy with the assets and are renewing leases, albeit short term. So the vault has not been as attractive as we would like to see.
Priyanka Garg: That said it has leasing clearly has not been.
Priyanka Garg: In on par with what was originally underwritten.
Priyanka Garg: There have done a very good job at retaining tenants tenants are very happy in the in the assets and are renewing leases, albeit short term sort of wallets has not been as attractive as we would like to see but I think that the railroad.
Priyanka Garg: But I think that the most important global comment I can make here is that there's a tremendous amount of credit support here, primarily in the form of repayment guarantees from creditworthy warm bodies. So this is a large loan. We're very focused on it, but the sponsor is focused on it as well for the reasons I just mentioned.
Priyanka Garg: The most important global comment I can make here is that there is.
Priyanka Garg: And are you able to indicate which market it is?
Priyanka Garg: Remember this amount the credit support.
Priyanka Garg: Here, primarily in the form of repayment guarantees from creditworthy warm bodies.
Priyanka Garg: It is a large line, we're very focused on it but at the sponsors focused on it as well as for the reasons I just mentioned.
Priyanka Garg: Are you able to indicate which market it is.
Priyanka Garg: It is; it's in Stanford.
Priyanka Garg:
Speaker Change: It's in Stanford.
Priyanka Garg: Okay.
Jade Joseph Rahmani: What about other upcoming 2024 maturities? There's quite a number of large ones like the New York condo loan. You know, one of your peers had some issues in that segment, specifically the higher end of the market. There's also New York land loan and finally California hospitality.
Priyanka Garg: What about other upcoming.
Priyanka Garg: 2024 maturities, it's quite a number of large ones like the New York condo loan.
Jade Joseph Rahmani: Are your peers had some issues in that segment, specifically the higher end of the market.
Jade Joseph Rahmani: There is also New York land loan and finally, California hospitality.
Priyanka Garg: Yeah, so I'll just speak broadly about just the maturities that we're seeing coming. Most of 2024, there are very few initial maturities and, or, sorry, final maturities.
Speaker Change: Yeah, So I'll just speak broadly about.
Jade Joseph Rahmani: About just the maturities that were seeing coming.
Priyanka Garg: Most of 2024 and is there is very few initial maturities.
Priyanka Garg: Sorry final maturities and so on those final maturities, where we have a path to pay off here for for many of them, we understand the transactions and our borrowers are working on.
Priyanka Garg: And so on those final maturities, we're in just, you know, we have a path to payoff for many of them; we understand the transactions that our borrowers are working on. And we also have line of sight modifications with some of those where we're going to need to extend beyond that final maturity date. In terms of our initial maturity dates, more than half of those loans are going to meet all of their extension tests as of right now.
Priyanka Garg: And we.
Priyanka Garg: Oh so have.
Priyanka Garg: Line of sight into modifications with with some of those where we're going to need to extend beyond that final maturity date in terms of our initial maturity dates.
Priyanka Garg: More than half of those loans are going to meet all of their extension test as of right. So we'll have to do a few modifications will work with borrowers going back to Mike's comment.
Priyanka Garg: So we'll have to do a few, you know, modifications; we'll work with borrowers, going back to Mike's comment, you know, if they're willing to put some capital in, and they have the operational expertise, we're going to work with the borrowers. We're not in the business of owning these assets, but we're happy to modify them for the right, right transactions. In terms of some of the specifics that you mentioned, there are no, we don't have any high-end condos in New York City, there's a very small NYC condo loan that has maturity in 2025, that was extended, but, you know, we feel very good about our exposure on the condo front in aggregate.
Priyanka Garg: If they're willing to.
Priyanka Garg: <unk> put some capital in and they have the operational expertise, we're going to work with the borrowers where we're not in the business of owning these assets, but we're happy to modify them for the right transactions.
Priyanka Garg: In terms of some of the specifics that you mentioned there there are no. We don't have any high end condos in New York City. There are some very small kind of New York City condo loan that has.
Priyanka Garg: At maturity and a 2025 that was extended but.
Priyanka Garg: We feel very good about our exposure on the condo front in aggregate.
Priyanka Garg: Okay.
Jade Joseph Rahmani: And lastly, just on the dividend, again, I understand the emphasis in your commentary around long-term earnings potential, but, you know, we're in kind of a volatile environment with a lot of uncertainty, and you all seem to be steeped in, you know, the day-to-day blocking talent, tackling asset management, and also managing liabilities. So, why not take the additional step of reducing the dividend to create additional leeway and also protect book value? You know, when you are paying out more in dividends than you earn, that puts downward pressure on book value. So, investors clearly project a trough book value. Any comments on those considerations? Jade, those are...
Priyanka Garg: And lastly, just on the dividend again.
Priyanka Garg: Understand.
Priyanka Garg: Yes, and your commentary around long term earnings.
Jade Joseph Rahmani: But what we.
Jade Joseph Rahmani: And kind of a volatile environment with a lot of uncertainty.
Jade Joseph Rahmani: And you all seem to be steep and the day to day blocking talent tackling of asset management and also managing liabilities. So why not take the additional step of reducing the dividend to create additional leeway and also protect book value. When you are paying out.
Jade Joseph Rahmani: More dividends than youre, earning that downward pressure on book value. So investors clearly protect a trough book value any comments on those considerations.
John Michael McGillis: Jade, those are discussions we regularly have at the board level. You raise all good points there, and those are... always things we consider.
Speaker Change: Jade those are those are discussions we regularly have at the board level, you're right all good.
Speaker Change: Good points, there and those are <unk>.
John Michael McGillis: Always things we consider.
Speaker Change: Thanks, a lot.
Operator: This concludes our Q&A. I'll now hand it back to Richard Mack for closing remarks.
John Michael McGillis: This concludes our Q&A I'll now hand back to Richard Mack for closing remarks.
Richard Jay Mack: Thank you. And thank you all for joining us.
Richard Jay Mack: Thank you and thank you all for joining us.
Operator: We will reiterate these are tough times in the real estate market.
Richard Jay Mack: It's a market where.
Richard Jay Mack: We are facing almost complete lock up of the market with very little transaction volume.
Operator: I will reiterate, you know, these are tough times in the real estate market. It's a market where we are facing almost a complete lock-up of the market with very little transaction volume. But even amidst this market, we are seeking to be opportunistic as we manage through a cyclical downturn. We are pushing for loan payoffs, we are selling loans, we are modifying loans, we are foreclosing opportunistically, we are deleveraging, and we are getting ready to originate again because we know that this too will pass. So thank you all for joining us, and we appreciate your support. Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation.
Richard Jay Mack: Even amidst this market.
Richard Jay Mack: We are seeking to be opportunistic as we manage through a <unk>.
Operator: Cyclical downturn we.
Operator: We are pushing for loan pay offs we are.
Operator: Selling loans, we are modifying loans, we're foreclosing opportunistically, we are deleveraging and we're getting ready to originate again, because we know that.
Operator: This too will pass.
Speaker Change: So thank you all for joining and we appreciate your support.
Operator: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines. We'd like to thank you for your participation. You may now disconnect.
Speaker Change: Ladies and gentlemen, today's call is now concluded wed like to thank you for your participation you may now disconnect your lines.
Operator: [music].
Operator: <unk>.
Operator: Thank you for your participation you may now disconnect.